The CVS Pharmacy logo display is displayed on the logo above the CVS Health Corp. store in Las Vegas, Nevada on February 7, 2024.
Patrick T. Fallon | AFP | Getty Images
After the bleakness of 2024 CVS Health Maybe start turning around.
Some investors seem to believe, especially after the big pace released by the retail pharmacy chain on Wednesday Fourth quarter revenue And the profit outlook for 2025 is consistent with expectations.
Unlike the company’s major retail pharmacy competitors, CVS’s share price has now risen by more than 45%. Walgreensits stock rose nearly 3%. Shares of other insurance companies UnitedHealth Group and Cigna Growth about 4% and nearly 8% respectively.
Optimistic quarterly results may indicate that CVS has a higher progress date, or at least things may not be as bad as last year.
The company’s stock fell more than 40% in 2024 after missing revenue estimates for three consecutive quarters in 2024 and withdrawing its annual forecasts. More than expected medical expenses In its insurance units, and other issues Pharmacy reimbursement pressure.
CVS has not yet escaped from the woods. Medical expenses are less severe in the fourth quarter, but in 2025, it may remain up as more seniors flock to hospitals and doctors’ offices and use more health care benefits.
However, some analysts are more optimistic about the company’s ability to drive these challenges forward and reach its full-year adjusted earnings outlook for 2025, at $5.75 to $6 per share. CVS pursues store closures and other cost cuts, with its new CEO David Joyner at the helm for most of the first 100 days focusing on the company’s insurance unit Aetna.
“These works are applicable (resumes can be returned),” said Michael Cherny, an analyst at Leerink Partners.
Cantor Fitzgerald analysts also upgraded CVS stock on Wednesday, citing “increased confidence in a successful transformation.”
Insurance business dilemma
The resume has taken steps to entitle its insurance business, including the Affordable Care Act, Medicare Advantages and Medicaid, as well as dental and vision. The company pulled out of certain unprofitable health plans in 2024 and landed on a premium this year to reduce membership.
Cantor Fitzgerald analysts said in a research note that they are “more confident” that resumes will increase profit margins in their Medicare Advantage business and return to “normal levels by 2027 ”.
CVS said it wants to restore the Medicare Advantage business to a profit margin of 3% to 5%. CVS CFO Tom Cowhey said on Wednesday’s revenue call that by the end of 2024, they will be in the range of 4.5% to 5%.
Resume and other insurance companies, e.g. UnitedHealth Group and Human Medical expenses soared last year as more Medicare Advantage patients returned to hospitals.
Medicare Advantage is a privately run health insurance program under Medicare contracts that has long been a driver of insurers’ growth and profits. However, investors are already concerned about the out-of-control expenses associated with these plans, which cover more than half of all Medicare beneficiaries.
In order to boost profit margins, the company plans to shrink its Medicare Advantage membership in “high unit series” starting from the end of 2024, executives said Wednesday. According to the company’s fourth quarter data release.
Overall, CVS executives said they expect to make insurers more than one million this year, including 800,000 in the individual market. Patients who have lost insurance can join the new Medicare Advantage program or join the traditional Medicare program.
Aetna also received a better Medicare Advantage Star rating for the 2025 payment year, which will improve its federal payments in 2026. These key ratings can help patients compare the quality of Medicare health and medication plans and determine the bonus payments that insurers receive from the Medicare & Medicaid Services Center.
CVS Health Corp. acquired Aetna Inc., a Hartford-based health insurance company, in 2018.
Brad Horrigan | Hartford Currant | Getty Images
Joyner said the company was improving the higher payment rates of Medicare’s advantage to the government during the revenue call. He said the proposed rate for 2026 did not consider higher medical expenses last year.
The Biden administration proposed in January to increase Medicare Advantage’s reimbursement rate by 2.2% in 2026, up from a 0.2% decrease this year. But Cantor analysts also said they expect reimbursement rates for Medicare’s advantage to be likely to rise, with an expected growth of 2% to 2.8%.
“We assume that interest rate environments improve…maintain the stellar rating, and the (medical) cost trend is no more than 2024 levels,” analysts wrote.
It is difficult to predict what the insurance industry’s medical expense trend will look like in 2025. However, this year’s CVS guidance incorporates higher medical costs.
Tanquilut said the outlook assumes the trend the company sees in 2024 will continue into this year, although the company has higher medical expenses for the company in the fourth quarter.
“The early readings of the 25s or at least the late 24s are that it’s starting to get better. But they don’t think the 2025 guidance improvements,” Tanquilut told CNBC. “So it sounds like their numbers have room for upside in 2025.
The company also said last year that it will be Major changes Compliant with its 2025 Medicare Advantage plans, such as increasing copayments and premiums and cutting certain health benefits. This will eliminate the costs associated with these benefits and evict patients who need or want to use them.
Other insurance companies (such as Humana), the second largest health insurance insurer, are also Collect their plans Membership with lower profits in 2025. Humana abandoned an astonishing 550,000 Medicare Advantage customers in a less profitable market. But the company said people who lose their existing plans may have another Humana Medicare Advantage plan option.
CVS inventory is better than competitors
On November 28, 2024, Walgreens Store at 3646 North Broadway, Chicago.
Antonio James | Chicago Tribune | Forum News Service | Getty Images
In terms of insurance and retail pharmacies, resume stocks outperform most of its healthcare competitors. Jefferies analyst Brian Tanquilut said this is likely due to CVS’s unique position as a health insurance company, retail pharmacy chain and pharmacy welfare manager, or PBM, called Caremark.
“I think what they’re starting to show is real synergy … owning all three assets,” Tanquilut said.
Located at the center of the U.S. drug supply chain, PBMs, such as Caremark, negotiated with manufacturers on behalf of insurance companies, created a list of preferred drugs covered by health plans, and paid the prescription drugs to the pharmacy.
This means Caremark is still at the intersection of CVS retail pharmacy business and its Aetna insurance company, thus improving the competitive advantage of both businesses.
For example, in some cases, Caremark directs the drug prescription to a CVS retail pharmacy. Tanquilut said this helped the company’s pharmacies gain meaningful prescription market share on its main competitor Walgreens, which has been working to become an independent pharmacy business.
Other insurers, such as Cigna and UnitedHealth Group, also own PBMs. But the fact that CVS owns a retail pharmacy “converges it all together to distinguish it from other drugs.”
This does not necessarily mean that other insurance companies are underperforming. UnitedHealthcare, the insurance company of UnitedHealth Group, remains the “best” in the industry, Tanquilut said.
In addition to higher medical expenses, other insurance companies have their own obstacles, such as Human Seeing its Medicare Advantage Star rating drop for the year.
However, the story of CVS is much more complex than the business model of other insurers, and the company can now reach the point where all three business units are clicking.
